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interactive chart; Deutsche Bank Research has Irish bank assets at 829.1% of GDP. International data on Irish banks includes units of foreign banks based in Dublin's International financial Services Centre.

Irish GDP in June 2010 was €160bn and the balance sheet of the 6 domestically owned banks was €523bn according to the Department of Finance, giving a ratio of 327%.

Euro Debt Crisis: Deutsche Bank Research says the reasons for the current
woes of some
Eurozone sovereigns on the capital markets
differ from country to country. In the case
of Greece, it was mainly a persistently
unsound fiscal policy that led to a loss of
confidence among investors, while in Ireland
this was primarily due to a credit bubble
which had inflated the size of the financial
sector. Portugal didn't even have a
mini-lending bubble.

In Ireland, as we well know now, annual
credit growth of 30% or more was bonkers and
while there is currently a focus or hope
that talks with the European
Commission/European Central
Bank/International Monetary Fund, will result
in a 'haircut' or discount on bank bond
debt, foreign deposits from institutional
and corporates, also supported the
boom edifice.

It was striking during the boom years that
among the major three Irish banks, the
builders' bank Anglo Irish Bank invariably
offered the highest deposit rates. It
was likely making a loss on some of
these deposits but it was presumably
considered a good strategy as reported
profits were for a decade among the best in
European banking.

Anglo was able to brag in it 2006 Annual
Report: 'Ten year compounded annual growth
rate in profit before tax of 39%; 21 years
of successive profit growth.'

Glas Securities said in a report earlier this year that Irish
bank debt maturities in 2010 were €51bn, of which €25bn is debt issued under the
2008 State bank guarantee. Covered Bonds accounted for €26bn of outstanding bank
bond debt of €115bn.

The outflow of deposits this year combined with the need for the
banks to raise new debt as Irish sovereign bond yield began to spike, raised the
red flag.

The banks began increasing borrowing from the ECB, which rose to
about €100bn in October and in addition the Irish Central Bank issued emergency
funding of €34bn.

The
Economist
reports that David Owen, chief European financial economist of Jefferies
International, an investment bank, says that the deposits of non-residents in
Irish banks were nearly €203bn in September, a figure larger than the €166bn
held by domestic residents and than Irish GDP.

The newspaper says some €179bn of deposits belong to customers
from outside the Eurozone, including many from Britain who were attracted by the
Irish government’s guarantee, offered back in 2008.

Last Friday, Allied Irish Banks reported an
outflow of
€13bn in 2010 with most of it dating from
June; the three main Irish banks
have lost €35bn in deposits in 2010 and an
estimated €109bn in overseas deposits or
debt securities in the two years to
September 2010.

A continuing outflow of overseas deposits,
say sparked by bond debt 'haircuts,' would
be alarming even with an EU/IMF rescue.

Deutsche Bank Research economist, Jan
Schildbach, says that in times
of tight markets, in particular, attention
should be paid not only to the common
characteristics of the individual economies
and banking sectors in focus but also to
their differences. The new
DB Research Interactive map European banking
markets helps with this differentiation
(see caption to image at the top of the
page).
It shows, among other things, the size and
growth of the financial sector in each of
the 27 EU countries over the past few years.
It becomes apparent that the problems faced
by Greece and Ireland (or Portugal, for that
matter) differ in nature and cannot be
traced back to the banking sector in every
case.

The economist said lending to private companies in
Greece, at a mean growth rate of 10.6% p.a.,
was expansive in the run-up to the crisis,
yet not much more than in the Eurozone area as a
whole (+8.2%). In Ireland, on the other
hand, loan volumes increased by more than
26% on average every year between 2002 and
2007, not least because of the booming
construction industry. Nominal corporate
debt tripled in less than five years - -
definitely a clear indicator of
unsustainable, excessive credit growth. In
Portugal, there was no sign of a
lending bubble at all, with loans
outstanding advancing by only a moderate 6%
per year on average.

Schildbach says at second glance, lending to private
households confirms the general impression:
Irish household credit growth, which
averaged 21% p.a. from 2002 to 2007, was
clearly unsustainable and mostly used to
finance continuously rising housing costs as
more homes were built and real estate prices
increased. By contrast, the Portuguese
figure of 8.9% remained close to that for
the Eurozone as a whole. Credit volumes in
Greece tripled over the same period of time
(+24% p.a.) - - also an unhealthy development,
though from a significantly lower starting
level than in Ireland: household debt in
Greece doubled from 27% to 56% of disposable
income, while it galloped from 92% to 166%
in Ireland. As a result, Irish borrowers
were much more vulnerable than Greek debtors
to a correction in the housing market and
the consequences of the recession that
followed the financial crisis.

The economist says two additional factors made the crisis
especially painful for the Irish banks and
ultimately Irish citizens. First, Ireland’s
financial institutions were used to only low
credit losses until 2007 - - with the effect
that both operating margins and reserves for
irrecoverable claims were lower than in
Greece. Second, the Irish banking sector had
grown so strongly that its stabilisation was
bound to represent a major challenge for an
economy of Ireland’s size. With a doubling
of its banking assets by 2007 from an
already high level in 2002 (360% of GDP),
Ireland dwarfed most other EU member states
- - and particularly Greece where the
financial sector expanded quite moderately
and also stayed considerably smaller than in
almost all other EU-15 countries, relative
to GDP.

”Confidence is key here and unless we can trust that the
data looks achievable, it will be difficult for the markets to calm
down,” Dariusz Kowalczyk, senior economist and strategist
at Credit Agricole told CNBC on the Irish debt
crisis:

Overall, it was mainly country-specific
reasons that triggered the deterioration of
the situation. In Ireland the oversized
post-bubble financial sector got the
sovereign into difficulties - - aggravated by
insufficient banking regulation and
supervision and driven by an interest-rate
level that was too low for Ireland as well
as by overly optimistic private borrowers.
On the other hand, there was no bloated
banking industry in Greece and even less so
in Portugal. In these two countries it was
primarily fiscal policies - - which were
already unsound before the crisis - - that led
to a massive loss of confidence on the
capital markets in the current recessionary
times.

Concerns over contagion in the Eurozone are warranted but the biggest challenge is likely on the political front, says Magnus Prim, chief strategist for Asia at SEB, as he discusses the region's debt crisis with CNBC's Chloe Cho, Anna Edwards and Yousef Gamal El-Din: